Chris Read: Brace for the 2021 inflation challenge

    Chris Read believes keeping a lid on inflation may be an unexpected challenge as productivity picks up in 2021

    South Sudan has an inflation rate of 476%, followed closely by that case study of a failed state, Venezuela.

    Let’s pretend in our wildest dreams that when the economy kick starts in a few weeks’ time that inflationary pressures push ahead at a fast pace.

    Not that you would be able to go to your local pub and seek advice from the regulars there about whether speculating on gold futures might be the way forward for investing any spare cash – your local is likely to remain shut for some time to come.

    Forward looking

    So, a few things to look forward to: Prices will rise but salaries, as ever, won’t quite keep pace. You will pay more for less. Interest rates can only really rise, while home ownership will fall. By the time we get to the autumn, we may well be ushered back to our lockdown play pens for Lockdown #2.

    We will still be awaiting the vaccine that will still be 12 months away by then. Mind you those over 70 haven’t left their homes yet, not since before the start of the first lockdown. Let’s give a clap to the Silent Generation, that stoicism, that British keep calm and be supine.

    Austere times of economic squeeze and difficulty will distil and make starker some fundamental business truths: from an investment or supplier selection perspective even, focus on companies that generate rather than consume cash. Sorry, this means no start-ups and no bright young things for the time being.

    Look to buy companies which can help you increase prices and handle a lot more business without having to spend a lot. Companies that deliver services to B2B or B2C markets using SaaS (Software as a Service) business models are clearly going to prosper going forward.

    Companies that have secured availability of their IT infrastructure, ideally deploying in the cloud, and architected their offerings to be easily integrated with other services, will be the future market leaders (if they aren’t already!).

    Same again?

    So, while we gulp the dying gasps of the Covid-19 Lockdown #1, take some time to consider how you could reset your thinking to get more out of Lockdown #2. Try and look beyond the next six months. Who knows, we may see 2-2.5% real growth next year in the economy? Stranger things have happened. The recent Budget is the most expansionary since WWII, the fiscal accelerator pedal is flat on the floor.

    With this sort of stimulus, the economy should expand once our productivity is able to reassert itself. Nine months from today, the companies we work for will have issues of staff accessibility, premises availability, supply chain release and of course inflation. This will all be happening at the same time as the delivery of a complex trade deal with the EU. What could possibly go wrong?

    Chris Read is group CEO of Dunstan Thomas